In New Jersey’s residential market, buyers are routinely paying more for properties even when identical or better alternatives are available at lower prices. This repeated disregard for a core principle in real estate appraisal, known as the principle of substitution, raises questions about how buyers evaluate homes and what drives their decisions. According to Lilly Shamam, Realtor and appraiser at Keller Williams Realty East Monmouth, the tendency to overpay suggests either a lack of access to comparable sales data or that emotional factors are outweighing rational analysis. Correctly priced homes attract multiple offers, while overpriced inventory sits, yet some buyers still pay premiums for properties with no objective advantage.
Shamam explains that the principle of substitution is straightforward: buyers should not pay more for a property when an equivalent is available for less. “Why would I buy a t-shirt that’s $13 when there’s another t-shirt with the same quality for $11.99? That’s how people need to think about homes,” she says. Applied to real estate, this means buyers should not pay $450,000 for a home when a virtually identical one is available for $400,000. Yet in markets such as Chester and nearby areas, buyers often overlook this logic, especially when listings are mispriced or emotional attachments cloud their judgment.
Multiple offers on a property are sometimes mistaken for signs of a hot market, but Shamam emphasizes that they indicate a home is priced correctly relative to similar properties. Overpriced homes, regardless of market conditions, rarely attract competition. Buyers with access to recent comparable sales typically avoid these listings in favor of better-valued options.
“You can’t just get multiple offers on properties that are not listed correctly,” Shamam says. “People have to be realistic with their homes.”
The problem arises when sellers or agents fail to align their asking price with the property’s actual market position. A well-upgraded 1950s home may offer genuine value, but only if its price matches that of similar properties. Buyers who submit low offers on homes that are already priced accurately waste time, while those who overpay for overpriced homes make poor investments. Shamam points out that sellers rarely entertain low offers on high-quality, properly priced homes. “A lot of buyers think that because of the seasonal change, they can lowball. You can’t, unless the property is not listed correctly,” she says.
The fact that substitution logic is not consistently applied in residential real estate suggests that psychological and informational factors play a larger role here than in other asset classes. One of the most common psychological barriers is the presence of personal property and clutter in a home. When buyers tour a property filled with the seller’s belongings, they struggle to imagine themselves living there, making it harder to assess the property’s true value.
“When a buyer goes into a home, and the home is filled with personal property, mentally, that buyer cannot envision his life there, so it just becomes some type of psychological stop,” Shamam says. She advises sellers to declutter and remove personal items to create a neutral space, helping buyers focus on the home’s features rather than its contents.
This response is irrational from a substitution standpoint, since a seller’s furniture or decor has no bearing on the home’s structure, location, or comparable value. Yet these factors regularly influence buyer behavior, leading to lower offers or outright rejection of otherwise suitable properties. Emotional attachments also explain why some buyers overpay for homes that do not objectively outperform others. Buyers who consciously value a specific feature, such as a view, a layout, or a neighborhood, and are willing to pay a premium for it, are at least making an intentional decision. Many buyers, however, pay extra for features that do not translate to higher value or resale potential, often without recognizing the financial impact.
Shamam argues that agents who educate buyers about substitution principles help reduce buyer regret and make the market more efficient. Buyers who understand how to compare properties based on objective criteria are less likely to overpay for features that do not add to resale value.
For investors, applying substitution logic is even more important. An investor who overpays due to emotion or incomplete analysis will struggle to achieve acceptable returns. Successful investing depends on acquiring properties at or below market value, making improvements if needed, and selling or renting them for a profit. Paying too much at the outset eliminates that margin. Shamam’s perspective is shaped by her experience as an appraiser, where objective valuation based on comparable sales is standard practice. In a market where emotions often drive both buyers and sellers, agents who can translate appraisal principles into practical advice provide real value to their clients.
Despite the importance of substitution logic, residential real estate is rarely a fully rational market. Buyers will continue to pay more for homes they feel emotionally connected to, and sellers will often price based on personal attachment rather than data. The question is whether agents and investors can use these inefficiencies to their advantage, or whether they too will fall into the same traps.
Buyer education and access to accurate comparable data are essential for a healthier market. Agents who guide clients through objective analysis can help prevent overpayment and reduce regret, while investors who apply substitution logic are more likely to achieve long-term success. In a market where emotions and perceptions often override data, those who rely on rational evaluation are best positioned to make sound decisions.
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